Long hours, strategy meetings and midnight pizza might be the life of beginning entrepreneurs. But they also need to add taxes to the list.
Just ask Aleks Poldma, co-founder of Hydrated World Inc., an athletic apparel company in Waterloo, Ont. When he launched his firm in 2013, he was eager to work with clothing designers, talk to lawyers and find new markets.
But taxes? His attitude was: "That needs to be done, but we'll figure it all out later."
But creating a tax plan and keeping records is important from the very beginning. Doing so will make the first year's tax filing easier to survive, and will result in fewer time-consuming mistakes to fix later, experts say.
Here are tax points any small business newbie needs to know to get off on the right foot with the Canada Revenue Agency.
Those who have grown accustomed to a salaried job, and filing a T4 form each year, can find it difficult to sock away money for taxes and the Canada Pension Plan.
The CPP, which usually eats up about 10 per cent of income, is something a lot of entrepreneurs don't consider, explains Caroline Battista, a senior tax analyst for H&R Block in Vancouver. The CPP payment is rolled into tax filing to reduce paperwork, but that also means it's not always recognized for what it is.
"People will say, 'Wow! I owe $7,000 in taxes!' But look here, $3,000 of that is CPP, so you're actually investing in your future," she says.
To keep things simple, Ms. Battista says new entrepreneurs should set aside about 30 per cent of their earnings for taxes and CPP until they enter a higher marginal tax bracket.
Put simply, you can claim any expense that either helps you set up a business or helps you make money. Many entrepreneurs know they can claim office supplies such as paper and toner, a business cellphone or a coffee with a client, but there's one expense that tends to be ignored, says Ms. Battista: car mileage and expenses.
"I can't say it enough times: Travel log, travel log, travel log," she says.
In other words, if you use your car to travel to a conference, or meet a customer or pick up some printing, you can write off the mileage and any other vehicle expenditures, such as gas, maintenance and insurance. But you need to be meticulous about tallying up how often you drive the family minivan for work so you can calculate the correct percentage.
Numerous handy smartphone apps will do the calculating for you – MileBug, Trip Miles and aCar are a few examples – but it's fine to stick with a more tactile approach. "There's nothing wrong with a little notebook and a pen on the side of your door," Ms. Battista says.
Keep it clean
Keep personal and business finances clearly separate, advises Bruce Ball, a national tax partner with BDO Canada LLP and a member of the CPA Canada small- and medium-practitioner tax committee.
For instance, Mr. Ball says he holds a couple of lines of credit, but he uses only one exclusively to pay for business expenses. (Loan interest can be claimed, by the way.) And even if you don't sign up for a business credit card, it's not a bad move to designate one card in the wallet to pay solely for business expenses. "It makes for easy recordkeeping," he says.
Ms. Battista cautions that even if you use this credit card for business, it's still important to keep receipts for every purchase, even gas at the pump. "Credit card statements don't show what you bought, so they're not good enough as a record," she says.
Take a number
A GST/HST number, that is. Although you don't have to collect this tax from clients until you make $30,000 in revenue, some entrepreneurs sign up right away to seem more professional and established.
Just remember that you have to start collecting the money as soon as you have the number, though, which can generate more paperwork than you bargained for.
File on time
While salaried employees have to file their 2014 tax returns by April 30, if you're self-employed, or you're a spouse or common-law partner of someone who is, you have more wiggle room, with a deadline of June 15. (Incorporated businesses have a more complicated system. Talk to an accountant about when to file.)
While June 15 sounds like a nice break, there's an Escher-like aspect to it: If you owe money in taxes, you've got to pay by April 30. But how you're supposed to know what you owe without doing the paperwork is a mystery. You might as well file by April 30 and get it over with, Ms. Battista says. Or make an educated guess. You'll wind up paying less interest and fewer fees.
Keep it together
Just because the filing deadline has come and gone doesn't mean you're finished with the CRA. Small business owners are more likely to be audited than those who work for an employer, says Mr. Ball. So make sure you do what you can to stay off the radar. Ensure your expenses seem reasonable and divide them up into categories – rent, office supplies and travel, for example – rather than lumping them together.
After the deadline has come and gone, keep receipts together rather than filing them separately. (So car insurance stays in the taxes 2014 file, rather than back in the "car insurance" folder.) That way if you're audited, it's just a matter of grab-and-go.
"I've learned to be on top of things," says Mr. Poldma, of Hydrated World. "The second you get a month behind it can turn into a huge mess."